Guinness Nigeria Earnings Rebound Despite Weakening Margins

By Modupe Gbadeyanka

A subsidiary of Diageo Plc of the United Kingdom, Guinness Nigeria, on Tuesday, released its Q2-17/18 results, showing an improvement from what was obtained in the first quarter results.

Specifically, the brewer’s net profit increased to N2.09 billion against the N2.44 billion loss recorded last year.

This was mainly buoyed by continued revenue growth, better margin, and lower opex and finance charges.

The net profit was equally higher compared to Q1-17/18’s N41.4 million, but below our N2.70 billion estimate and consensus expectation of N2.8 billion.

In addition, the company’s revenue grew by 11 percent year-on-year and 36 percent quarter-on-quarter, sustained by festive demand, strong marketing effort, and relatively higher prices.

In a statement issued recently, DIAGEO said the group enjoyed positive price in Nigeria, and that mainstream spirits and value beer (Dubic precisely) recorded faster growth during the period.

Sales volume was reported to have grown by about 17 percent y/y over H1-17/18. Value beer (23 percent y/y), Guinness (14 percent y/y), Malta Guinness (6 percent y/y), and main stream spirits (22 percent y/y) recorded net sales growth in the first half.

According to analysts at Cordros Research, “While gross margin remained higher relative to the last financial year (+601 bps y/y), we are quite surprised by the 118 bps decline compared to the first quarter.

“Compared to our estimate, gross margin was lower by c.650 bps, and has weakened consistently since reaching record 55 percent in Q3-16/17, reflecting, as we stated in the Q1 note, growing contribution of value beer and inflationary pressure on key raw material input prices (Sorghum in this case).”

On the positive, opex was lower by 12 percent y/y and was below the estimate by 25 percent. Admin and distribution expenses were lower by 25 percent y/y and 24 percent y/y respectively while marketing expenses increased (following focused campaigns on Guinness) by 20 percent y/y.

EBITDA margin of 15.4 percent was reported, significantly higher y/y, but lower by 96 bps q/q.

Cordros said also worth highlighting is the 65 percent y/y decrease in finance charges, comprising N583 million loss (N857 million in Q2-16/17) on foreign exchange transactions and N374 million (vs. N1.9 billion in Q2-16/17) related to interest expense on loans and borrowings and overdraft facilities.

Compared to Q1, FX loss and interest expenses were lower by 74 percent and 77 percent respectively.

Gross debt now stands at N12.5 billion post-Rights Issue, and the consequent reduced interest burden will remain supportive of earnings for the rest of 2018.

Cordros noted that continued growth in revenue and the savings on both operating and financing costs bode well for GUINNESS’ earnings in 2018.

However, continued weakening margins dampens earnings growth expectation from 2019, as the effect of low revenue and finance cost bases tapers.

The stock has gained 20 percent YtD, and positive reaction to the result is expected with estimates under review.

Dipo Olowookere is a journalist based in Nigeria that has passion for reporting business news stories. At his leisure time, he watches football and supports 3SC of Ibadan. Mr Olowookere can be reached via

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